Connoisseur Developments Limited & Ors v Antonakis Koumis

The court construed the joint venture agreement dated 4 August 2006 (the "JVA") and applied ordinary principles of contractual construction to determine the parties' rights and obligations. The judge held that clauses 4.1 and 4.2 gave the Company wide managerial and policy discretion in relation to the Development (including changes to design and number of flats) and that the Parents had, on the facts, agreed to the construction of 11 flats rather than 9. Clause 3.6 required payment of £800,000 "in consideration of the Property" and the JVA must be read as providing for transfer of the freehold to the development, so the administrator's later transfer to the Company was not wrongful.

The court rejected an argument that broad fiduciary obligations were owed beyond the express good faith clause (clause 5.1) and held that no additional minimum fiduciary standards should be implied; the express contractual good faith and further-assurance clause (clause 5.3(c)) governed inter-party obligations. On the facts the judge found no general fiduciary duty preventing the Claimants from developing the Site as they did.

The court found that the rent payments received by the Parents in respect of two flats were not mere gifts and should be accounted for against the £800,000 price; the administrator's subsequent payment of £800,000 produced an overpayment to the estate (the judge identified at least c.£129,000) and a further enquiry on precise quantification was required. The claim that the Defendant's refusal to grant long leases prevented refinance and caused specified refinancing losses failed for want of sufficient evidence and because the planning/permission position was the dominant cause. By contrast the judge held that the Defendant had been obliged, under the JVA and the further-assurance obligation, to co-operate in signing routine loan renewal documentation and that the Claimants had a proven loss from default interest and related matters; the matter of quantum was to be further determined. The Defendant's refusal to sign the s106 planning agreement was also a breach and loss flowing from that refusal required further inquiry.

This first-instance trial concerned disputes arising from a 2006 joint venture agreement for redevelopment of 16-18 Hazelwood Lane, Palmers Green (the "Main Property"), and associated leasehold land. The parties were members of the Koumis family (the Parents, their sons Andy and Chris, and other siblings) and the First Claimant company (the "Company"). The JVA contemplated demolition and the building of nine flats, on terms whereby the Parents would obtain an £800,000 payment "in consideration of the Property", the Company would manage the Development and any surplus profit would belong to the Company.

The Claimants sued for losses said to flow from a number of alleged breaches of the JVA and related duties: refusal by the Defendant (and/or the estate) to consent to long leases and refinancing, refusal to sign loan renewals (leading to default interest), refusal to sign the s106 planning agreement, and an allegation that the Claimants had overpaid when the administrator later paid £800,000 to the estate although the estate had already received rental income from two flats.

Key issues framed by the court included:

• Construction of the JVA: whether the Company had power to change the Development from 9 flats to 11 and to pursue retrospective planning; whether the £800,000 was payment for transfer of the freehold or merely for use of the Property;
• Whether express duties (clause 5.1 duty of good faith and clause 5.3(c) further-assurance) or any fiduciary duties were breached;
• Characterisation and accounting for rental payments received by the Parents (whether they reduced the £800,000 and whether the administrator's subsequent payment was an overpayment);
• Whether refusal to grant long leases caused a loss of refinancing opportunities; and whether refusal to sign loan renewal documentation and the s106 agreement caused loss;
• Quantification and limitation issues, and whether further inquiry was required on quantum.

The judge addressed family witness evidence with caution and emphasised reliance on contemporaneous documents and inherent probabilities. Applying established principles of contractual construction (citing authorities such as Rainy Sky, Arnold v Britton and Network Rail as to the interpretative approach), the judge concluded that the Company did have contractual power under clauses 4.1 and 4.2 to determine matters of principle and to proceed with the development as occurred; the Parents had agreed factual changes leading to 11 flats and the Bank documentation supported that position. Clause 3.6 and related provisions were naturally read as requiring transfer of the freehold as part of the JVA structure and therefore the transfer pursuant to the court-appointed administrator was consistent with the JVA.

On duties, the judge followed the reasoning in Re Compound Photonics to the effect that the meaning of an express good faith clause depends on the clause itself and that there are not universally applicable "minimum standards" to be implied in every good faith clause. The court declined to import broader fiduciary obligations into the commercial joint venture other than those that might arise from its terms and specific facts (drawing on the analysis in Glenn v Watson and other authorities).

On rentals, the judge found there had been an informal arrangement under which the Parents received rental income from two flats and that the method of accounting was left open; those sums were not gifts and must be credited against the £800,000 payable under the JVA. The administrator's payment of £800,000 therefore produced at least an identifiable overpayment requiring quantification.

The claim that the Defendant's refusal to execute long leases caused the loss of refinancing offers was rejected: the contemporaneous evidence did not establish a relevant refusal before 2013, the Claimants had not proved a concrete lost refinancing on obtainable terms, and the planning permission and enforcement position was the critical cause of any inability to sell or refinance. By contrast the court found that the Defendant was contractually obliged to sign routine loan-renewal documentation and that failure to co-operate had caused chargeable default interest; similarly, refusal to sign the s106 agreement was a breach. The judge indicated that quantification of those heads of loss, and the exact figure for any overpayment, required further hearing(s).

Disposition: the judge resolved liability issues in part in favour of the Claimants (finding breaches relating to loan renewals and the s106 refusal and an overpayment issue in respect of the £800,000), dismissed other causes (notably the long-lease/refinance loss), and directed a further hearing for consequential matters of quantum, interest and costs.

The claim was allowed in part. The court held that the JVA gave the Company authority to determine matters of principle under clauses 4.1 and 4.2 and that the Parents had agreed to the change to 11 flats; clause 3.6 provided for payment of £800,000 in consideration of the Property and envisaged transfer of the freehold. No broad fiduciary duties were to be implied beyond the JVA's express good faith clause. The rentals received by the Parents were to be credited against the £800,000 and the administrator's payment produced an overpayment that requires quantification. The court rejected the claim that refusal to grant long leases caused lost refinancing, but found breaches in relation to failure to sign loan renewal documentation (causing default interest) and refusal to sign the s106 agreement; quantum and interest to be determined at further hearing(s).